Alice N. Sanders
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Alice N. Sanders in US Markets,

Appetite for U.S. stocks in 2018 looks mixed, with valuations bloated: Goldman

Moves in the equity market are more than anything driven by supply and demand, with prices rising when there is more demand than supply. With major U.S. indexes at records and valuations looking elevated, demand prospects for 2018 look mixed at best.

An exception to that, however, is exchange-traded funds, which are expected to accelerate their massive popularity in the coming year, according to Goldman Sachs.

The investment bank estimated that U.S. flows into ETFs would hit $400 billion over 2018, which would represent a 33% jump from its 2017 estimate of $300 billion. Such a target would mean the U.S. ETF market grows by about 13% next year, excluding price changes in the underlying assets.

ETFs trade like stocks but hold baskets of securities, like mutual funds. They have seen a surge in popularity in recent years as they are typically seen as cheaper and more tax efficient than equivalent mutual funds, as well as more flexible given the ability to trade them throughout the session. (Mutual funds only price and transact at the end of the day.)

In 2016, ETFs accounted for 30% of all U.S. trading in terms of value, and 23% in terms of share volume, according to Credit Suisse data. Of the 15 most popular securities traded, measured by both volume and valued traded, 14 were ETFs.

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